YKK AP Integrated Report 2019

YKK AP Integrated Report 2019

*FH19-207-1*

CONTENTS

Part I: YKK AP Value Creation

04 History of YKK AP 06 The Value Creation Process at YKK AP to Support Sustainable Growth 08 The YKK AP Value Chain for a More Sustainable Society 10 YKK AP Sustainability Management System 12 YKK AP Monozukuri Extends Across Japan and the World 14 Putting the YKK PHILOSOPHY "Cycle of Goodness" into Practice

Top Message: Hidemitsu Hori

18 The Entire Company Comes Together to Realize YKK AP Monozukuri

Dialogue with Our Executives 20 Column

The Future YKK AP Creates-1

Part II: Sustainability Management

22 Monozukuri Perspective 24 Monozukuri Practice 26 Monozukuri and Environment

29 Column The Future YKK AP Creates-2

30 Corporate Governance

32 YKK AP in Numbers 34 Major Awards 35 Company Outline

Part I

YKK AP Value Creation

"No one prospers without rendering benefit to others." YKK's Founder, Tadao Yoshida, named this philosophy the "Cycle of Goodness" and made it central to all business activities as he built the YKK Group into what it is today. Our mission at YKK AP is to carry on this philosophy and provide our customers with windows and other architectural products to lead healthy and comfortable lifestyles. Going forward, we will continue refining the technical skills we have accumulated over the years to offer products that will bring happiness to people around the world.

Tadao Yoshida YKK's Founder (1908-1993)

The photograph features the YKK AP R&D Center (located in Kurobe, Toyama) where region for the integration of the YKK AP's technology.

This is home to approximately 370 engineers, who delve into research and deepen their knowledge as they deliver high quality monozukuri (the art

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of manufacturing and craftsmanship). 3

Part I: YKK AP Value Creation

History of YKK AP

YKK PHILOSOPHY

CYCLE OF GOODNESS

"No one prospers without rendering benefit to others."

As an important member of society, a company survives through coexistence. When the benefits are shared, the value of the company's existence will be recognized by society. When pursuing his business, YKK's Founder, Tadao Yoshida was most concerned with that aspect, and would find a path leading to mutual prosperity. He believed that using ingenuity and inventiveness in business activities and constantly creating new value would lead to the prosperity of clients and business partners and make it possible to contribute to society. This type of thinking is referred to as the "Cycle of Goodness" and has always served as the foundation of our business activities. We have inherited this way of thinking, and have established it as the YKK Philosophy.

History

Yoshida Shoji Co., Ltd. (current YKK AP Inc.) is established in Nihonbashi-Bakurocho, Tokyo (mainly sales and exports of fastening products).

Manufacture and sale of interior aluminum interior products begin.

YKK Industries (Singapore) Pte. Ltd. (current YKK AP FACADE PTE. LTD.) is established as the first overseas affiliate of YKK's architectural products business.

Manufacture and sale of double glazing begin.

YKK AP is established

The company is renamed YKK Architectural Products Inc. (YKK AP) and Tadahiro Yoshida is appointed as the first president.

About AP (Architectural Products) Embedded within the company name is a promise to always continue pursuing the highest levels of art and technology ? two elements that have formed the basis of architectural culture throughout history.

YKK MANAGEMENT PRINCIPLE

"YKK seeks corporate value of higher significance."

The YKK Group Management Principle is based on the philosophy of the "Cycle of Goodness" and states: "YKK seeks corporate value of higher significance." YKK Group companies seek to delight our customers, earn the high regard of society and make our employees happy and proud. We are improving the quality of our products, technology, and management as the means to achieve this. We make fairness the fundamental standard for all YKK Group business operations, and this is the basis for our management decisions.

CUSTOMERS

PRODUCTS

Society Activity SOCIETY

FAIRNESS

TECHNOLOGY

EMPLOYEES

MANAGEMENT

Seeking corporate value of higher significance, YKK will pursue innovative quality in the seven key areas shown above.

The Management Principle inherits Tadao Yoshida's philosophy and was formulated in 1994 by Tadahiro Yoshida, who was the president of YKK and YKK AP at the time. It epitomizes our resolve to relentlessly strive toward creating value based on fairness, which forms the fundamental standard of all our decisions.

Tadahiro Yoshida

Current Director First President of YKK AP

YKK's Architectural Products Manufacturing Group is integrated into YKK AP Inc. and the architectural products business of the YKK Group becomes a fully integrated organization.

The window business brand APW series is launched, carried by a desire to improve windows in Japan.

YKK AP FACADE PTE. LTD. is established in Singapore.

Operations begin at the Saitama MADO (window) Plant.

1934

1957

1959

1961

1962

1976

1983

YKK is founded Architectural products business begins

San-S Shokai (current YKK Corporation) is founded by Tadao Yoshida in Nihonbashi, Tokyo, and the production and sales of fastening products begin.

4

Aluminum casting and extrusion works begin at Ikuji Plant (current Kurobe Plant).

Manufacture and sale of aluminum window sashes begin.

Manufacture and sale of vinyl sashes begin.

1984

1986 1990

2002

YKK Alumico Indonesia (current PT. YKK AP INDONESIA) is established as the first overseas plant with an integrated production system for architectural products.

The company is renamed YKK AP Inc.

2003

2005 2006 2007 2008 2009

From sash manufacturer to window manufacturer

Proclamation to promote double glazed residential windows.

YKK AP AMERICA INC. begins sales of residential vinyl windows.

Sales of APW 330 residential vinyl windows begin.

2011 2016

The YKK AP R&D Center is opened.

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Value Creation Process

The Value Creation Process at YKK AP to Support Sustainable Growth

The "Cycle of Goodness" is the DNA inherited by all of us at YKK AP and forms the foundation of all our business activities.

YKK PHILOSOPHY

CYCLE OF GOODNESS "No one prospers without rendering benefit to others."

YKK MANAGEMENT PRINCIPLE

"YKK seeks corporate value of higher significance."

CUSTOMERS

PRODUCTS

Society Activity SOCIETY

FAIRNESS

TECHNOLOGY

EMPLOYEES

MANAGEMENT

MISSION To devote everything we have to the culture of architecture and train our sights on

the future

VISION From living spaces to urban spaces, YKK AP has kept pace with the times

and leads the way into the future

Exterior Business

Residential Business

Industrial Products Business

YKK AP Businesses

Renovation

Business

Facade Business

Commercial Products Business

Overseas AP

Business

Social Issues and Needs

Shifting demographic and household trends Residential housing policies Resources and energy Environmental issues

6

Fifth Mid-Term Management Plan

(FY 2017 ? FY 2020)

Sustainable growth of the AP business through added-value and demand creation

Key Measures

Promote windows with high thermal insulation performance

Reinforce sales through expanding products range and increasing product appeal

Create demands and boost growth

Increase engineering capability and promote high thermal insulation products

Reinforce business foundation and expand business in the target market

Expand presence of Facade business

Standardize and optimize business process

Lifestyle Regional revitalization Crime and disaster prevention Health and comfort

Shortage of craftsmen Abandoned houses

...Etc.

Technology Oriented

Value Creation

Fifth Mid-Term Management Plan

--Product appeal & proposal capability --Technology & manufacturing capability

--Human resource development

FY 2020 Mid-Term Plan

Net sales

458.9

billion yen

Operating income

31.3

billion yen

The photograph features an aerial view over Kurobe, Toyama, where YKK AP's R&D and manufacturing centers are focused.

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Part I: YKK AP Value Creation

Part I: YKK AP Value Creation

SDGs in Our Value Chain

The YKK AP Value Chain for a More Sustainable Society

The "Cycle of Goodness," which forms the foundation of our business activities, is in itself contributing to the development of a sustainable society. While continuing to provide architectural products that bring joy to our customers, YKK AP is also engaged in resolving social issues.

About the SDGs

The Sustainable Development Goals (SDGs) were adopted by the United Nations in 2015 and are comprised of 17 goals and 169 targets to be achieved by 2030. The SDGs require actions to be taken by everyone involved, from corporate entities to government agencies and the country as a whole.

Research, development and

verification

Creating technologies to support monozukuri

}P.22-23

?YKK AP R&D Center ?Elemental technology development ?User verification ?Product development to address

social issues ?Implementation of JIS tests (JNLA registered businesses) ?Product safety measures

Material procurement

Responsible material procurement

}P.31

?YKK Group Procurement Policy ?Green procurement ?Chemical substance management ?Recycling promotion

Manufacturing and logistics

In pursuit of manufacturing and delivery quality

}P.24-25

?Integrated production system ?Optimal production lines operated jointly

with the YKK Machinery and Engineering Group ?Health and safety management ?Energy efficiency, waste management, considerations to the ecosystem ?Logistics engineering*

Sales

Installation

Product use

Product appeal and proposal capability

?Technical proposals to address social issues ?Development of tools to propose technologies (simulators for

thermal insulation and ventilation, VR) ?Enhancement of product exhibition facilities (experience,

installation and technology) ?Awareness-building activities by professional users at various forums ?Design proposals utilizing BIM

In pursuit of greater construction quality

?Research, development and proposals of labor-saving installation methods and jigs

?Installation training and certification systems organized by field engineers for building contractors

?Improvement of installation skills and quality led by the YKK AP Group Installation Cooperative

User-friendly and social-friendly products

?Healthy, comfortable, energy-efficient ?Crime and disaster prevention products ?Products for remodeling projects ?Maintenance by certified technicians ?Improvements to user manuals ?Release of environmental information

and environmental labels

Foundations supporting our value chain

Corporate governance

}P.30

Compliance }P.31

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Risk management

}P.31

Human resource development

Health management

Environmental management

}P.26-28

* Development of labor-saving technologies by utilizing automation and the IoT; optimization of loading efficiency and transportation networks 9

Sustainability Management System

YKK AP Sustainability Management System

Under the YKK Philosophy and Management Principle, YKK AP is engaged in creating a sustainable society as viewed from a global perspective. Based on the ISO26000 CSR system, we have referenced the SDGs to organize key issues (materiality) and initiatives from environmental, social and governance perspectives.

Environmental, Social and Governance (ESG)

Environment

Considerations for the environment and actions against global environmental issues

Social

Efforts to resolve social issues

Governance

Corporate social responsibility to stakeholders

Corporate Social Responsibility (ISO26000)

Community involvement and

development (S)

Human rights (S)

Consumer issues (S)

Organizational governance (G)

Labor practices

(S)

Fair operating practices

(S)

Environment (E)

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ESG Seven core subjects of ISO26000

G

Organizational governance

Key issues Corporate governance

Compliance Risk management

Human rights

Respect for human rights

Human resources and welfare

Labor practices

Health and safety Human resource development

Fair operating practices

S

Consumer issues

Community involvement and

development

Diversity

Corruption prevention and fair competition

Responsible political involvement

Promotion of social responsibility in our value chain

Respect for property rights

Fair marketing, information and contract fulfillment

Protection of consumer health and safety

Sustainable consumption

Consumer services and support; resolution of complaints and disputes

Community involvement

Education and culture

Health

Social investment

Pollution prevention

E

Environment

Sustainable use of resources

Climate change mitigation and adaptation

Environmental protection; recovery of biodiversity and natural habitats

Key efforts

?Decision-making mechanisms as an organization

?Observance and education of compliance regulations

?Implementation of BCP ?Risk committees (Quality Committee, Foreign Trade Control Committee, Crisis Management Committee, Information Security Committee, Technical Asset Management Committee) ?Respect for human rights ?Harassment prevention ?Equal employment opportunities for men and women ?Continual employment of a fixed number of employees ?Management of the Work Style Reform Committee ?Compliance with the amended law (Work Style Reform Act) ?Enhancement of welfare, childcare and family care services ?Shortening of working hours, encouragement to take paid leave, work style reform ?Creation of a comfortable working environment ?Training on health and safety; facility safety inspections ?Promotion of physical and mental health ?Improvement of human resource development and training systems ?Improvement of operational skills training ?Human resources development enhancement of candidates for overseas assignment ?Enhancement of programs to appoint women to higher positions and support career development ?Promotion of employment of people with disabilities ?Use of diverse human resources ?Acceptance of sexual minorities ?Management and handling of supplier governance information ?Regulations on political funding and other gift exchanges ?Management of contact with competitors ?Consideration toward subcontractors (Subcontract Act)

?Exclusion of antisocial forces

?Promotion of Green Procurement

?Research and development at domestic and overseas R&D centers ?Respect for intellectual property rights

?Customer information service (product safety)

?Creation and distribution of owner's manual ?Assessments based on user verifications ?Elimination of harmful substances

?Development, provision and promotion of eco-friendly products and services

?Improvement of traceability ?Continuous improvement of manufacturing and delivery quality ?Customer information service (enhancement of customer support pages)

?Stakeholder dialogue ?Community contribution activities

?Training for installation technicians ?Educational support for future generations

?Proposal of healthy and comfortable energy-saving lifestyles

?Emergency support during disasters (infrastructure support, cooperation with municipalities)

?Prevention of pollution caused by the release of air pollutants, wastewater, waste, harmful substances or other reasons (risk reduction and reinforcement of measures) ?Reduction of energy use, such as electricity, fuel, etc. ?Waste reduction and recycling promotion ?Reduction of water use ?Reduction of greenhouse gases ?Prevention of losses related to climate change; climate change mitigation measures ?Consideration for the ecosystem (protection and monitoring of endangered species) ?Measures against water intake and wastewater risks

Related SDGs }P.30-31

}P.31 }P.22-25

}P.29 }P.26-28

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Part I: YKK AP Value Creation

Residential Business

Main products

Windows Entrance doors and sliding doors

Interior doors and partitions Window shutters

Exterior Business

Main products

Balconies Carports Gates and fences Terraces Exterior materials

Renovation Business

Main products

Window remodeling Door remodeling

Building renovation Quake-resistance retrofitting

YKK AP Businesses

YKK AP Monozukuri Extends Across Japan and the World

With our diverse line of architectural products, YKK AP is creating corporate value that is right for the times in which we live. These include windows and doors that make living spaces more comfortable and facades that help create a more beautiful urban landscape. To this end, we are engaged in monozukuri across Japan and the world.

YKK AP R&D Center

JAPAN

Commercial Products Business

Main products

Office building windows Curtainwalls

Building entrances Windows and doors for low- and medium-rise residential buildings

Remodeling products

Facade Business

Industrial Products Business

Line of business

High-rise and complex curtainwalls Design, construction and sales of related

products

Main products

Components of machinery and equipment Auto parts

Architectural components Eco-friendly products

OVERSEAS

Ever since establishing our first overseas company in Singapore in 1976, we have been operating our international businesses to take root in each country or region to provide products that meet their needs, climates and cultures. We support each company by providing appropriate governance from Japan while continuing to enhance core technologies. Keeping in mind the words of YKK founder Tadao Yoshida encouraging us to "become a local," we are working to spread the monozukuri skills that we have cultivated in Japan to the world, guided by our philosophy of the "Cycle of Goodness."

YKK AP R&D Center

(Germany)

YKK AP R&D Center (Indonesia)

YKK AP FACADE PTE. LTD. YKK AP SINGAPORE PTE LTD. YKK AP FACADE VIETNAM CO., LTD. YKK AP AMERICA INC. YKK (CHINA) INVESTMENT CO., LTD. DALIAN YKK AP CO., LTD. YKK AP (SHENZHEN) CO., LTD. YKK AP (SUZHOU) CO., LTD. YKK AP (SHANGHAI) CO., LTD. YKK AP HONG KONG LTD. YKK TAIWAN CO., LTD. PT. YKK AP INDONESIA YKK AP MYS SDN. BHD. YKK AP (THAILAND)CO., LTD. Bhoruka Extrusions Private Limited

No. of offices and centers in Japan

198

12

No. of manufacturing bases in Japan

24

No. of employees in Japan

12,311

Overseas presence in

10

countries/regions

No. of major overseas manufacturing bases

8

(As of March 31, 2019)

No. of overseas employees

4,010

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Part I: YKK AP Value Creation

Top Message

Putting the YKK PHILOSOPHY "Cycle of Goodness" into Practice

Contributing to Healthy and Comfortable Lifestyles

Hidemitsu Hori President

Looking back on FY 2017 and FY 2018

At YKK AP, we aim to deliver advanced comfort to our customers' lives and urban spaces by providing windows, doors, and other architectural products. At the same time, we strive to be a company that contributes to the creation of a sustainable society to enrich people's lifestyles.

Our business policy under the Fifth Mid-Term Management Plan (FY 2017 ? FY 2020) is "sustainable growth of the AP business through added-value and demand creation." We have specified and are engaged in key measures for each of our businesses and fields, such as promoting windows with high thermal insulation performance in our Residential Business and improving sales in the Exterior Business based on product appeal.

Looking back on these first two years, I feel that each of the endeavors is progressing steadily. Particularly in the field of residential windows, we are seeing increased sales of our vinyl windows with high thermal insulation performance. In a joint effort with the YKK Machinery and Engineering Group ? which functions at the core of YKK Group technologies ? we developed an original sequence of manufacturing lines for each product and they are being set up in each of our manufacturing bases. The manufacturing line for vinyl windows is also being installed in succession across Japan. We believe that enhancing production systems in areas where the products have demand will reduce environmental burdens caused by long-haul distributions, while also further increasing sales.

We are also processing our own double and triple glazing as well as Low-E glasses coated with metal membranes, all of which likewise increase the thermal insulation performance of windows. Being in possession of these manufacturing processes and functions is one of our strengths. While the amount of new domestic housing construction work is decreasing, our strategy of providing such windows with high added-value is starting to show success.

However, we have also noticed several issues. Over these past two years, raw material costs rose higher than our expectations, and distribution costs also

increased. We were unable to absorb these, which affected our earnings. Furthermore, as our businesses have spread into many different fields over the past ten years, issues of efficiency are also starting to surface. We are currently engaged in reviewing our operations, including our employees' work styles and our systems.

Our business strategy for the next two years

In terms of our overseas businesses, we are currently seeing steady sales in the U.S., but sales from each of the companies in Asia are still insufficient. Therefore, we will strengthen support from Japan to make it easier for local employees to work, while also providing governance. In addition, our focus until now has mainly been on ultra high-end products, but we are determined to tackle the mass market and provide products of a price range that many people in the country can afford. To make this happen, we plan to employ all the technologies we have accumulated in Japan over the years.

In terms of products, we are contemplating a move into new fields, and one of them is "smart, connected products."

Today, Internet of Things (IoT) technologies are enabling various items and devices to be connected, and this trend is moving into the realm of residential homes. As the whole house becomes connected, so must doors and windows. In 2018, we announced the "Future Door: UPDATE GATE." Equipped with artificial intelligence (AI) and a facial recognition system, this door will make it easier to look after the elderly and interact with family care and delivery personnel. The product is currently being exhibited in our showrooms, with plans to be launched in 2020. We will continue developing new products by using new technologies.

Technology Oriented Value Creation

YKK Group's vision for the Fifth Mid-Term Management Plan is "Technology Oriented Value Creation."

Since its foundation in 1934, the YKK Group has been engaged in monozukuri with the corporate

Hidemitsu Hori

President

Born in 1957. Joined YKK in 1981. Worked in the U.S. between 1989 and 2006. Returned to Japan in 2006 and worked as the Vice President of Corporate Planning and Senior Managing Business Director before being appointed President of YKK AP in 2011.

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